ALL EYES are on Ben Bernanke. The local markets are now awaiting the decision of the US Federal Reserve on Tuesday, night which could well have a major impact on the rupee and bond prices.
While there is a broad expectation that the Fed could snip away at the rates by 25 basis points, some treasury managers are betting on the US monetary policy authority cutting rates by 50 bps, which could then boost the rupee. In such a scene, the Indian currency may open at 40.35 levels on Wednesday, a trader in a private bank said.
If the Fed decides to slash interest rates, it is widely expected that funds may flow away from the US to emerging markets, specially China and India. This means that while the dollar would weaken globally, the rupee would gain strength.
Says Axis Bank treasury head Partha Mukherjee: “Even if the Fed leaves rates unchanged, the rupee will eventually strengthen on the back of huge inflows. In the near term, the rupee could hover between 40.30 and 40.40 levels, while in the longer run, even a breach of 40 levels cannot be ruled out.”
On Tuesday, the rupee was quite volatile against the dollar. The local currency ended the day at 40.48/49 levels versus the greenback, after having opened the day at 40.5850/5950 levels. During the day, the rupee was seen fluctuating between 40.46 levels and 40.62 levels against the dollar. On Monday, the rupee had closed at 40.56/57 levels.
According to a senior treasury manager with a private sector bank, the underlying sentiment in the market was extremely bullish, while both large-sized state-owned banks and even multinational players were seen selling dollars.
With the stock market also on the upswing, there was a sustained sale of dollars, said forex market traders